Leadership built on experience

Sir Terry
Leahy, chief executive of Tesco, values experience and low-key leadership.
A good company should make sure employees really can work their way up through
the organisation, he says.

Leadership
"I don't think that leadership skills change essentially during the course
of a business cycle," says Sir Terry Leahy. The same skills apply, he adds,
but what changes is how they are applied. After all, a good leader should be
looking for market positions that work throughout the cycle.

That's why Sir Terry puts huge emphasis on experience. Research shows, he says,
that the best leaders tend to have come up through the ranks, working their
way to the top and acquiring extensive knowledge of the industry and the company
at the same time. "They know the business better and they can mobilise
people better," he says.

Sir Terry also values low-key, unfashionable leadership. "Not all parts
of Jack Welch are good," he says, " though they may be interesting
to read about."

Organisation, culture and customers
Similarly, some corporate cultures work better than others, says Sir Terry,
and the most successful tend to be companies where everyone has a clear idea
what the business is for. "The workers have to believe in the business
for reasons other than remuneration," he says.

In particular, they have to have an open attitude to customers, rather than
putting products first: "A relationship with customers has to be from the
foundation up; customers are the start, not the end of the business."

Strategy
There is no right and wrong way to approach strategy, says Sir Terry. "What
works, works." But what works most often, he adds, tends to be a focus
on core business rather than empire building. The reason is simple: focus allows
the managers to get the attention of the organisation and the staff behind a
particular line of business and a particular type of customer.

And though there is no wrong approach to strategy, cost cutting is, in itself,
an admission of failure. "You should never have had the costs in the first
place," insists Sir Terry. "Cost cutting every five years means four
years of bad management." He concedes, however, that in a cyclical business
a manager often has to make a bet, and that bet may go wrong.

Globalisation
Globalisation will continue because there are strong drivers behind it, points
out Sir Terry. But for any individual firm, there needs to be strong reasons
to expand globally. Too often, it's an automatic ambition, but instead companies
should start by defining where their key market is, whether it is regional or
national, and then look hard at the benefits expansion would bring.

Equally, a company should only make an acquisition if it will really create
value. "Most don't," says Sir Terry. "There have to be synergies
that are so strong that they are obvious even to an outsider." What's more,
the target company should be undervalued by the market. With asset values still
high in many countries, he points out, the savings needed to justify the purchase
price should be even higher.

Managing risk
During the Asian financial crisis, Tesco used the opportunity to buy market
entry cheaply. But the move took courage, given the risks. "I'm not sure
that the ways companies assess risk have improved much at all," he says.
Instead, he believes that companies have simply grown more comfortable with
the idea of taking on risk in order to achieve growth.

Talent
Sir Terry says that all workers want four basic things from a job. They want
a job that is interesting; they want to be treated with respect; they want a
good boss; and they want the chance to get on. "Any organisation can set
out to deliver those things," says Sir Terry. After all, the greatest source
of productivity, he says, is through the engagement of people with their jobs
and their company.

Training is important, he says, not only for the company's sake but also for
the employee. But in the desire to increase talent and encourage people to stay
on, many companies offer the wrong sorts of training. Tesco generally finds
that on-the-job training is far more cost effective than endless courses. At
any one time, the company has 10,000 employees undergoing training for promotion.
With 250,000 employees worldwide, the company has six levels of management and
any employee can progress through them all, he notes. "You really can start
as a trolley boy and end up as a managing director."

Technology and innovation
To foster creativity, says Sir Terry, you have to be able to accept failure:
"If you find it difficult to accept failure, then you simply won't get
any innovation because employees will be too frightened."

Governance and finance
For Sir Terry, listing brings benefits quite apart from access to capital. "When
a business is owned and scrutinised by its shareholders", he says, "then
the pressures are generally good." And it is up to the company's leaders
to ensure that they respond to those pressures in a way that will lead to the
long-term health of the firm, he adds. "Generally, in the long run, more
transparent companies are simply better run."

Benchmarking
In judging any company, the main criteria have to be financial-looking at "the
ability to grow the business through the P&L", says Sir Terry. Good
financial results are the output, he explains, whereas customer satisfaction,
employee satisfaction and transparency are merely inputs. Outputs are inevitably
the real basis for judging, and that is why a loss ought pretty much to rule
a company out of the running for any award, in his opinion.

But any judgment of financial results needs to take a long-term view-possibly
even decades. "If a business was good in 1993 and is good now, then it's
better than a company that's just good now." He also believes that large
companies tend to be better, because "if a small company stays small for
years, then there's something wrong with it." A track record of growth
is impressive, he adds.